Dean Barber

The Digitization of Manufacturing: The Fourth Industrial Revolution to Come

In Corporate Site Selection and Economic Development on June 21, 2016 at 9:14 am

In my last blog entry – The Future of Work in the Next Economy – I wrote about how digital technologies will redefine what it means to be an employer, an employee and a customer in the next economy.

Now I do not claim to be someone who has extraordinary insight of what lays ahead. I do not bill myself as a “futurist.” Still, I think it is safe to say that computer technology is now viewed as a general technology, ranking in transformative importance to that of steam power, electricity and the internal combustion engine. This is life changing stuff.

A Wild Ride Ahead

As I write this, I am looking at the cover of Forbes Magazine, delivered to me today by mail. It features the image of Sundar Pichai, the new chief executive officer of Google Inc.

Beside Mr. Pichai’s image, in small print, it says: “The Freshman CEO bets the company on A.I.”

The big headline in all cap letters on the magazine’s cover is “GOOGLE’S NEW SUPERPOWER,” with a smaller type subhead, “The search giant’s bold move to reinvent every device on the planet – including you.”

It is the “including you” part is that so fascinates me. I have not read the story yet, but I most certainly will, even if I kinda, sorta suspect what it is going to say.

Based on the cover and what little I know, this article will say that under Mr. Pichai’s leadership, Google, with a market cap of a half a trillion dollars, intends to push the digital envelope in such way that artificial intelligence will transform business and how we live our lives.

Are most of us going to know Mr. Pichai’s name 10 or 20 years from now? I have no idea. But I do suspect that Google (and other tech companies) will be taking us on a wild ride that we will long remember.

The Fourth Industrial Revolution

The term “Industry 4.0” or fourth industrial revolution was first used in 2011 at the Hannover Fair in Germany, referring to the computerization of manufacturing and the creation of the “smart factory.”

Some people believe that we are just now entering in the fourth stage of an industrial revolution, characterized by cyber-physical systems that communicate and cooperate with each other and with humans in real time.

The theory goes that the first industrial revolution was marked by the mechanization of production using water and steam power. The second industrial revolution introduced mass production with the help of electric power.

Then came the third phase, the digital revolution or information age, with the adoption and proliferation of computers and digital record keeping that continues today.

And here we are today just entering the fourth industrial revolution, linking cyber-physical systems, robotics and sensor networks to physical elements to dramatically increasing the adaptability, autonomy, efficiency, functionality, reliability, safety, of the manufacturing process.

Making Things Smart

This is about the “internet of things” or IoT, a network of physical devices that collect and exchange data via software, sensors, and actuators, expanding internet-connected automation into a plethora of new applications.

Industry 4.0 will make possible smart factories, smart grids, smart homes, smart (autonomous) cars, and even smart cities, all identifiable through embedded computing systems that interoperate within the internet.

McKinsey Global Institute predicts that the annual economic impact of operations and equipment optimization through the use of IoT will range between $1.2 trillion and $3.7 trillion in 2025.

To be sure, Industry 4.0 will be about an incredible rise in data volumes and computational power and connectivity. It will be about analytics and business intelligence capabilities. It will be about advances in human-machine interaction and transferring digital instructions to the physical world, such as advanced robotics and 3-D printing.

Will People Adapt?

The big question that looms is will people adapt? I think that it is safe to say that some will and some won’t. The same holds true for companies and even communities. Those that do not adapt will fade way.

Many of the companies that I have served in a consulting capacity have been manufacturers that need my help in finding an optimal location from which to set up future operations.

Many of the communities that I have served in a consulting capacity have been dependent on manufacturing, whether it be keeping it, growing it and/or attracting it.

But the fact remains that traditional manufacturing business models are changing under Industry 4.0 and that will have huge effects both with companies and communities. This is largely due to software, digital platforms and cloud storage, which opens up all sorts of new opportunities.

More Companies Responding

U.S. manufacturers are responding. They have invested an average of 2.6 percent of their annual revenue in digital technologies in the past two years, according to a recent report by PwC.

In short, these manufacturers believe algorithm-based decision will allow them to conduct everything from pricing to product planning to supply chain management and research and development more efficiently.

Their investment in digital technologies is expected to increase to almost 5 percent of revenue in the next five years, an estimated $350 billion, according to PwC.

Manufacturers will not only have to be thinking about replacing industrial equipment, but they will also be on the hunt for the brightest software developers, the smartest programmers and engineers, and the most creative designers.

Workforce Initiatives on the Local Level

It is here where cities and states can take a lead role. (I give no hope to a dysfunctional federal government where gridlock is the norm.) Developing better training and apprenticeship initiatives on the local level through public/private partnerships would seem to be the key.

This is what Germany, with a vibrant manufacturing sector, does so well. This is what the United States can so improve on.

The truth is that the next phase in the digitization of the manufacturing sector will require fewer people working on factory floors, but there will remain a great demand for those people who have data and analytics skills. Those will be the ones manning the smart factories of the future.

The United States already is a leader in software development, and I am of the belief that this country can and will make the transition to Industry 4.0 if take a bottoms-up strategy on the local level.

How Many Indeed

In the course of my work, I have been in communities, both urban and rural communities, where there is little or no educational opportunities being offered to develop digital talent. Indeed, I have been in some rural places where the principal vocational program being offered was cosmetology.

One frustrated manufacturing plant manager, who sat on the board of a community college in a small town, said to me, “just how many cosmetologists do we need here?”

So a digital divide truly does exist in this country, not just for individuals but for communities, too. This is something that we can fix. Actually, this is something we must fix if the U.S. is to remain a manufacturing powerhouse in the world.

I’ll see you down the road.

Postscript: I will be on a long road trip east of the Mississippi in late July and early August and will be available to visit and speak in certain communities. See “Clifftop or Bust!”  for more details.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a location advisory and economic development consulting firm based in Dallas. He can be reached at dbarber@barberadvisors.com or at 972-890-3733.  Mr. Barber is available as a keynote speaker.

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